Wage traps as a cause of illiteracy, child labor, and extreme poverty
Series
Discussion paper
Type
discussion paper
Date Issued
2008-01-08
Author(s)
Abstract
When labor incomes approach subsistence levels, the labor supply curve slopes outward, because the fight for survival mandates households to look for longer work hours in response to falling wage rates. We explore conditions under which near-subsistence scenarios may imply wage traps, labor market failures that can be the cause of undernourishment, illiteracy, and child labor. After stating general conditions under which wage traps occur, we look at specific production functions typically employed in quantitative analyses of growth and development. We find that standard Cobb-Douglas production functions do not permit wage traps, whereas CES functions do. Beyond that it turns out that when subsistence requirements increase with work hours, and when work effort rises with the wage rate, up to the efficiency-wage threshold, wage traps become more likely. Policy measures such as bans on child labor, implementation of minimum wage laws, or the establishment of labor unions may quite effectively improve conditions in wage-trapped labor markets.
[http://www.vwa.unisg.ch/RePEc/usg/dp2008/DP-02-Ga.pdf Volltext herunterladen]
[http://www.vwa.unisg.ch/RePEc/usg/dp2008/DP-02-Ga.pdf Volltext herunterladen]
Funding(s)
Language
English
Keywords
Subsistence income
labor supply
poverty
child labor
wage trap
market failure
development
growth
HSG Classification
contribution to scientific community
Refereed
No
Publisher place
St. Gallen
Number
2008-02
Start page
21
Subject(s)
Division(s)
Eprints ID
42251